This paper develops a theory in which housing prices, the capital structures of banks (mortgage lenders) and the capital structures of mortgage borrowers are all endogenously determined in equilibrium. There are four main results. First, leverage is a "positively correlated" phenomenon in that...

This paper develops a theory in which heterogeneity in bank capital choices arises in a general equilibrium despite ex ante identical banks. In a future state, the credit market is partially frozen in a crisis - high-capital banks have continued access to funding liquidity but low-capital banks...

We examine whether a firm's debt maturity structure affects its credit quality. Consistent with theory, we find that firms with greater exposure to rollover risk (measured by the amount of long-term debt payable within a year relative to assets) have lower credit quality; long-term bonds issued...